EU Central Bank will bail out Greek banks directly

The EU Central Bank intends to bail out Greek banks directly, bypassing the Greek government.

Greece has pretty much reached the end of the road as far as bailouts are concerned and will almost certainly drop out of the €uro. As the threats and scaremongering escalate, Greeks are withdrawing more money out of their banks and causing even more damage to the decimated Greek economy.

Directly bailing out Greek banks allows the ECB to give Greece the money it needs to prevent their banks from losing a terminal amount of capital without being seen to be caving in in the face of the Greek government's obstinance.

If the Greek government can't convince enough people that their money is safe in Greek banks then they'll have to impose capital controls to prevent the transfer of cash from banks to individuals. This is what happened in Cyprus after the Cypriot government was forced to go cap in hand to the EU when they were unable to secure Russian finance because the EU wouldn't allow Cyprus to give Russia priority creditor status.

ECB becomes leader of last resort for €urozone

Via Austrian economist, Detlev Schlichter, comes news that the EU Central Bank has declared itself the lender of last resort for €urozone countries.

Apparently this is allowed under existing treaty provisions and means that if an EU member state is unable to pay its way it will be legally responsible for creating some magic money out of thin air to lend to that member state, just like the Bank of England did to bail out RBS, Lloyds, Northern Rock and the other banks it ended up financing.

On the subject of the Bank of England, it's interesting to note that the BoE provided almost €58.6m of capital to the ECB which represents a 14.5% share in the company.  What I have been unable to discover thus far - but intend to find out - is whether the Bank of England is liable for the debts of the ECB and if it is, whether that liability is limited and to how much.

Two down, three to go: Portugal is next

Back in November, the Republic of Ireland came under pressure from France and Germany to accept an illegal bailtout from the EU.  Ireland, of course, said it didn't need a bailout and that it was worried about the loss of sovereignty associated with mortgaging the country to the EU but what little faith investors had left in the Irish economy was undermined and a week later they accepted a €100bn loan from the EU (including several billion from the UK) and IMF.

The required changes to the Lisbon Treaty to make bailing out member states legal have been made (another broken promise by Cast Iron Dave) paving the way for the next bankrupt Eurozone country to be bailed out.  Greece has already had €110bn from the EU and IMF, the Republic of Ireland has had £100bn and next on the list is Portugal who will be taking €80bn.

Portugal says that it doesn't need a bailout (like Ireland said) but France and Germany are trying to pressurise the Portuguese government into taking a bailout sooner rather than later (like they did to Ireland).  The French and German stock markets fell by about 1 and a half percent each and the FTSE fell half a percent on the news and the Americans are fretting about the risk of European sovereign debt.

Portugal is going to try to sell €1.25bn of bonds on Wednesday to get its hands on some cash and the interest rates are expected to be high.  Bonds are basically a type of loan taken out by governments from private markets with a guaranteed amount to be paid back on a specified date (assuming the country issuing the bonds doesn't default like Greece did).  The amount of interest investors demand on the bonds is an indication of the risk - if they think there's a chance the bonds will be defaulted on then they will demand a higher percentage rate, just like a high street bank does based on peoples' credit ratings.

On Thursday, Spain and Italy (the other two bankrupt PIIGS countries) will issue their own bonds to try and raise cash and how well they do will depend on Portugal's bond issue on Wednesday.  The ECB will probably buy more Portuguese bonds (it's already been buying up Greek, Portuguese and Spanish bonds to try and encourage investors) but as the ECB is the central bank of the failing Eurozone, it's a mystery how they expect investors to be reassured by their purchase of potential toxic bonds from the bankrupt PIIGS countries using their own money!

The order of the fall of the PIIGS has already predicted - "Portugal, Spain and Italy will be next" - Portugal will be bailed out in the next couple of weeks and then Spain will follow shortly thereafter.  Or will it?  Can EU member states (or the IMF for that matter) afford the €250-300bn it will cost to bail out Spain?  Will Spain be the straw that breaks the kamel's rücken and leads to Germany pulling the plug on the Euro?

The EU's political elite will defend the Euro and the EU project to the bitter end but the money will run out soon and Germany has been lucky so far to have pretty much escaped the consequences of the collapse of two Eurozone economies.  Next time they might not be so lucky and when the impending collapse of the Euro starts to hit Germans in the pocket they will be out of it.

Quis custodiet, ipsos custodium?

Well aren't we popular today? Idly browsing the recent visitors to Bloggers4UKIP this afternoon turned up a couple of interesting visits ...

Visitor	136.173.xxx.xxx	IP Address	136.173.xxx.xxx
Date	03 Apr, Fri, 15:20:53	Net Speed	Unknown
Organization	European Parliament	Browser	MSIE 7
Continent	Europe	Operating System	Windows XP
Country	Belgium	Screen Resolution	1280x1024
State / Region	Unknown	Screen Color	32 Bit (16.7M)
City	Unknown	Javascript	Enabled

Visitor	proxy1.ecb.int	IP Address	195.128.xxx.xxx
Date	03 Apr, Fri, 14:22:47	Net Speed	Corporate/T1
Organization	European Central Bank	Browser	MSIE 6
Continent	Europe	Operating System	Windows XP
Country	Germany	Screen Resolution	1280x1024
State / Region	Nordrhein-Westfalen	Screen Color	32 Bit (16.7M)
City	Bank	Javascript	Enabled